Articles from August 2009

Britain’s economy shrank by 0.7 per cent in the second quarter, a smaller decline than the 0.8 per cent initially estimated, official figures showed this morning.

The annual drop in GDP was also revised up to show a 5.5 per cent fall. The initial estimates had suggested a 5.6 per cent decline.

However, this is still the sharpest annual fall since records began in 1955.

The FTSE 100 blue chip index, which had begun to rally before the figures were published, was 1.01 per cent higher, up 49.44 points at 4,918.79.

Economists had expected the figure to remain unchanged, but the official figures showed that statisticians had revised up their estimates for the manufacturing, energy, wholesale and motor vehicles sectors.

The Office for National Statistics said that there was anecdotal evidence that the Government’s car scrappage scheme had helped to boost the car industry.

Despite this positive news, however, the figures still showed record falls in construction output since records began in 1948.

The service sector also recorded the biggest annual decline since official records began in 1955.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Business investment slumped by a record annual rate of 18.4 per cent in the second quarter, raising fears that the economic contraction between April and June could have been bigger than initial forecasts.

The amount spent by businesses on a range of investments, from new computers to building works, fell to £29.8 billion in the second quarter of the year, down 10.4 per cent from the first quarter and 18.4 per cent lower than the same period last year, official figures show.

This is the biggest quarterly drop since 1985, excluding a statistical blip in the figures in 2005.The annual decline is the largest since official records began in 1967.

The worse than expected data has led some analysts to speculate whether revised GDP figures, out tomorrow, could show a sharper decline than the current estimate of a 0.8 per cent fall.

There are also fears that the dire investment data could also hamper the country’s recovery from recession as it becomes clear that company spending cannot be relied on to boost the economy.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

The number of jobless households has jumped to a record of nearly half a million – the highest level since Labour came to power in 1997.

The figures, published by the Office for National Satistics (ONS), are the latest evidence of the heavy toll being taken on households by the recession, and prompt concerns about the potential dire impact of the economic slump upon children, with nearly two million now in workless homes.

The ONS revealed that the number of households including at least one person of working age but without a job has hit 493,000, an increase of 158,000 on a year ago and the highest number since 1997, when the data was first collected.

The rate jumped by 0.8 percentage points from a year earlier to 2.5 per cent.

Remember Stalinist Brown’s lie- the end of boom and bust?

The figures relate solely to households where all people are unemployed; that is, both available for work and actively looking for it.

Where jobless households with “inactive” people are included — housewives or husbands, students, the long-term or temporarily sick — the figure rockets to 3.3 million, a 240,000 increase on last year.

The rate among these households increased by 1.1 percentage points from a year earlier, to 16.9 per cent, the higest rate since 1999 and the largest year-on-year increase since 1997.

The number of children in these wholly workless households stands at about 1.9 million, up 170,000 from a year earlier.

The data comes a week after official figures outlined the grim outlook for young people while overall unemployment currently stands at over 2.4 million.Data revealed that the number of “Neets” — young people not in education, employment or training — has risen to a record 959,000.

In total, 835,000 18 to 24-year-olds are Neets, up from 730,000 from the same time last year, while the number of unemployed school-leavers aged 16 and 17 who are not studying or training is 124,000.

Analysts have prediced the the total number of Neets could rise to more than one million in the third quarter.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

The rally in shares came to an abrupt end today as the leading FTSE 100 share index dropped back by 31 points in early trading.

Falls across the mining sector pulled the index back from yesterday’s ten month high to 4,865.10, a 0.64 per cent drop. The rally had been fuelled by growing signs the global economic recovery is quickening.

The drop in UK shares followed a muted end of session in New York, where the Dow Jones industrial average ended up just 3.32 points at 9,509.28 after a buying spree.

Overnight in Asia shares also slipped in a part reversal of the previous day’s solid gains, as many investors stuck to the sidelines, awaiting more clues on whether the economic recovery would prove long-term.

Japan’s Nikkei average shed 0.8 per cent after jumping 3.4 per cent the previous day, its biggest one-day gain in three and a half months.

In Europe Frankfurt’s DAX slid 0.67 per cent to 5,482.99 and Paris’s CAC 40 edged down 0.91 per cent to 3,618.77 points.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

On Friday we had further positive feedback from the US economy as existing home sales came in much better than forecast hitting 2 year highs.

This data and a healthy economic assessment from Ben Bernanke boosted the good cheer in the markets. We are approaching the one year mark from the collapse in the financial systems and at the moment things are looking pretty steady and stable.

However I feel economic data will be closely scrutinized in the next quarter to look for sustainability in the markets and not simply a knee jerk response to extra stimulus.

An article in the FT by Nouriel Roubini points to a threat of a double dip recession if the recovery turns anaemic.

Chin up to you Aussie readers- yes you have lost the Ashes and also the rugby against rivals New Zealand over the weekend. However do not despair as your currency is strong- hitting new 12 year highs against sterling at 1.9608.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Many of the four million homeowners who took out interest only mortgages are facing a crisis because they have no way of repaying their home loans.

Figures from the Financial Services Authority, which has regulated mortgages since 2004, show that 38 per cent of Britain’s 11.1 million mortgage borrowers — or more than one in three — may have made inadequate provision to pay off their capital sum.

Many are in negative equity and the savings products taken out to cover the capital repayments have fallen short. That 38 per cent figure does not include those with endowments or buy-to-let investors who took out interest-only mortgages to keep the cost down.

Experts said that homeowners who pinned their hopes on their house covering the cost of paying off the mortgage were most at risk after house price falls of 22 per cent from peak to trough, according to figures from Halifax.

A spokesman for the FSA said: “At the top of the market it was the case that for a lot of borrowers, interest only was the only way they could afford to buy. For these borrowers it becomes increasingly difficult to pay off the capital as time goes on.”

A spokeswoman for the Council of Mortgage Lenders said that at the moment homeowners cannot rely on house-price inflation to cover the capital repayment. “They will have fewer options available if they get into difficulty, as switching to interest-only is a coping strategy when you have payment problems.”

Interest only deals first appeared in the early eighties alongside endowment policies. Endowment mis-selling in the late eighties brought an end to their common use as a repayment vehicle but the concept of interest- only remained.

About 40 per cent of borrowers on interest-only deals took them out before 2003, according to moneysupermarket.com, although there was a surge in applications in 2006 and 2007, as house prices rose.The proportion of loans that are being repaid on a capital and interest basis has fallen from 53.1 per cent at the end of 2007 to 51.7 per cent, indicating that switching to an interest only loan has continued.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Yesterday morning we had the Bank of England minutes which fed through a vote of 6-3.

The market initially perceived the split of 3 to be in favour of a lesser increase than the £50 billion expansion in QE decided.

In fact the 3 – King, Besley and Miles wanted an expansion of £75 billion which confirms two things; one is that assumption is the mother of all errors especially when looking at current market conditions and also that the MPC are very very cautious and would rather do more than not enough.

This leaves the door open for more Quantitative Easing especially as Mervyn King was petitioning for larger stimulus and paints a pointedly negative slant on the UK economy from the MPC…hence this led to sterling weakness against the USD and EUR.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Sterling was the belle of the ball in the currency markets yesterday gaining 1% against the US Dollar and the euro.

The positive trend was started wit the news that CPI data for the UK (a key indicator on inflation) came in unchanged at +1.8%. Although the inflation level is still below the 2% target a drop was widely forecast.

This was especially true against the BoE raising the QE programme by £50 billion and the feedback from the quarterly inflation report which noted that inflation was set to fall below 1%.

Sterling jumped on the news as the market digested a less dovish underlying data snap than the sentiment preceeding.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

New York stocks rise as better than expected results from retailer Home Depot offset the surprise drop in housing starts

US housing starts and permits fell unexpectedly in July, as hopes for a boost from falling house prices and government stimulus efforts for first-time buyers proved over-optimistic.

Privately owned housing starts fell 1 per cent to a seasonally adjusted annual rate of 581,000 units. This was well below market expectations for 600,000 units and significantly less than the revised 587,000 unit figure for June, according to figures from the US Commerce Department. Compared to July last year, housing starts dropped 37.7 per cent.

Construction starts for single family homes, the worst hit part of the housing market, rose 1.7 per cent to an annual rate of 490,000 units, the highest since October. But the headline figure was dragged down by a 13.3 per cent fall in starts on multi-family units.

New building permits, which give a sense of future home construction, fell 1.8 percent to 560,000 units in July. Analysts had been expecting 580,000 units. Compared to the same period a year-ago, building permits declined 39.4 per cent. This was despite the $8,000 Federal government tax credit stimulus efforts introduced for first-time buyers.

The inventory of total houses under construction fell to record low 609,000 in July, the department said, while the total number of permits authorised but not yet started also hit a record low at 102,300.

US stocks rose in morning trade as the surprise drop in housing starts was offset by better-than-expected results from retailer Home Depot. The Dow Jones industrial average was up 63.63 points, or 0.70 per cent, at 9,198.97.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Chinese shares fell to their lowest level in two months amid growing fears that this year’s rally has been based on unsustainable levels of easy credit.The benchmark Shanghai Composite Index fell 5.8pc to close at 2,870.63, its lowest level since June 18, with commodity and property companies hardest hit.

China’s markets have shown increasing volatility this month as investors chase rumours that China’s banks have been ordered to cool the surge of lending seen in the first half of the year.

Some analysts have estimated that up to 20pc of the $1 trillion (£615bn) in bank lending in the first half of 2009 has been funnelled into property and the stock market, creating a fresh round of asset price bubbles.

Reports have also suggested that rises in metal and other commodity prices this year have been driven by Chinese inventory stock-piling rather than actual demand, further dampening the appetite of investors.

Confidence had already been hit after a report released on Friday showed US consumer confidence was weaker than expected in August, confirming that China’s exporters will not see recovery in the short term.

And foreign direct investment in China fell for a 10th month in succession in July as international companies stalled expansion plans amid the global financial crisis, according to figures released by the Commerce Ministry.

Although the market is still showing a 58pc gain this year – down from a high of 90pc on August 4 – the market has see-sawed since July on rumours and media reports that credit policy was tightening.

Despite some record land sales in China in the first half of this year, fuelled in part by state-owned enterprises seeking a home for easy credit, new property sales fell by 20pc to 30pc in major cities, indicating a worrying imbalance between supply and demand.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.